Philanthropy, Impact Investing and the BoP
In recent years there has been an explosion of interest from both the international development and business communities in “impact investing,” an umbrella term for efforts and approaches that share the specific goal of bringing about social and environmental benefits through investment mechanisms that, at minimum, aim to return investors’ principle. The actual expectations of groups that self-identify as impact investors can vary significantly, however, with some investors expecting commercial-rate returns and others expecting a return of principle or nominal, below-market returns. The vast differences in expectations, among other factors, have led to an intense and ongoing debate on “impact investing tradeoffs” - the idea that you cannot have both significant social impact and significant financial returns on investment simultaneously. In other words, achieving significant social impact through investment deals means that financial return expectations must be reduced (often significantly), while investors seeking higher financial returns must settle for lower social impact resulting from their investments. This tradeoff is captured by the now widely used terms “Financial First” Investors and “Impact First” Investors.
Will “Modern Wood Stoves” Sell in Chhota Udepur, India?
About three months ago I spent a day in eastern Gujarat - a village called Virpur and a town called Chhota Udepur. It was my first time. In the Chhota Udepur market, I found a "stove shop"; it was selling LPG stoves with a large single burner for the commercial/institutional customers. I went in the shop and talked to the owners. The old man has been selling and repairing kerosene stoves and lamps for some 40 years. He still has kerosene lamps (electricity is fairly extensive and the supplies are reliable, so kerosene is used as backup or for farm use, or for the poorest people with low-quality homes or no homes) and also sells metal wood and charcoal stoves. The colorful small cylinders are for pressurized kerosene stoves. Fuelwood is sold for about 8-10 USc/kg, high for a relatively small town. Another is of a van making LPG cylinder delivery to homes.
I am learning Gujarat is unusual - my village of some 3,000-4,000 people back in 1940 used to have coal and charcoal; kerosene came in the 1950s and LPG in the 1970s. But, apart from the demand side (affordability, readiness to change), the existence of delivery chains such as these also played a great role. For towns like Chhota Udepur, LPG stoves from LPG franchisees started in the 1980s and the 1990s, but even then it was up to this small stove shop to innovate and make stoves for the commercial, institutional market (and repair the household LPG stoves cheaply).
In Response to “It’s Time to Start Judging Nonprofits like For-Profits”
I was elated to read Alexa Clay’s and Jon Camden’s article, It’s Time To Start Judging Nonprofits Like For-Profits, back in January when the article was published on Fast Company’s Co.Exist platform and, although the article is a few months old now, the points that the authors make it far from outdated.
Although I am glossing over some of the article’s subtleties, the basic argument is that Americans have a skewed view about what is required to run an effective nonprofit organization and how crucial overhead is for nonprofits to be able deliver on their social mission objectives. Sadly, our culture of philanthropy in America has lead so many donors to think that every penny that goes to cover overhead costs is actually at odds with or somehow takes away from achieving social impact. This perspective fails to consider that high overheads (relative to program budgets) may in fact be critical to achieving social impact and that these overhead costs are actually investments in the long-term success, efficiency, and impact. The article elaborates on this point with the following:
This constant pressure that nonprofits feel from both their mission-driven world and the donor landscape toward minimizing anything that could be counted as “overhead” is destructive and efficiency-killing. Low overhead means burning staff out at an alarming rate, and having trouble sourcing or retaining skilled workers. It pushes organizations toward duplication over cooperation to attract and maintain funding. Worst of all, it forces a short-term view on what should be a long-term mission.
